We asked Neil Cameron, one of the world's leading legaltech consultants to share his thoughts on the technology aspects of law firm mergers.
The serendipity has transpired, the courtship is complete, the broad principles are decided, and your law firm has decided to merge with another. By which, of course, we often mean that one firm will effectively be the acquirer, and the other one, the acquired. It may be a merger from a position of strength, or from a position of weakness.
You will have considered the strategic match, the cultural match, geographic reach, market compatibility and many other things – you probably have not wasted much time thinking about the compatibility – or otherwise – of the various IT systems.
There are then many details to sort out – there will be discussions about valuation, price, earnings, promotions and demotions, offices and who will get the plum jobs; Managing Partner, CFO, heads of Business Development, Know How, HR and Facilities. In the process, a clear and accurate understanding of the costs of the merger will need to be identified.
So far, technology may not have figured too much in negotiations – this is unfortunate, because some of the assumptions that will already have been made – especially about costs and benefits of the merger – are already set to be undermined by cold hard facts about the future of the merged firm’s IT systems.
Having done the apparent heavy lifting then thoughts will turn to the ‘details’. It is at this point that slightly odd things can happen. One of the best (i.e. worst) examples I can recall, is the merger when an acknowledged world-class IT Director was not appointed to the new firm, because the previous three heads of functions had already gone to the incumbents from the same merging firm.
One knee-jerk reaction is often to pick the largest firm’s systems and impose them on the smaller firm on the assumption that this is the least costly and disruptive. As appealing as this argument is – the logic is not always applicable.
Other equally appealing, and potentially equally inappropriate, logic can produce decisions such as:
These are all useful and potentially relevant criteria, in their own way, but it is all a bit more complicated than that. All of these elements, and others that we will run through below, are relevant, but they all need to be identified and weighed against the characteristics of the newly merged firm – having regard to its size and its strategic objectives both of which may be very different to those of either of the previous entities.
Let’s start with consideration of the front office systems, as this whole area has become a lot easier due to the hegemony of Microsoft. When I started working with law firms, one of the most important decisions on any merger was which word processing system to use – that has not been an issue for decades. Nowadays, it is simply Microsoft across the board: Word, Excel, PowerPoint, Outlook and Exchange etc, to which we can add Teams, OneNote, Visio and the rest, as appropriate.
There are still wrinkles here; the firms may have been on different versions of Office, or – more significantly – one firm may have thin-client and another fat client. The former can be fixed by a simple, partial upgrade, whilst the latter will need much more consideration, along with other relevant linked factors such as the degree of outsourcing. More on this below.
Around the implementation of office will be a range of additional and miscellaneous utilities for which there are a small number choices, such as document comparison, PDF production, Word utilities, metadata removal and so on. Useful and important as these utilities are, they are tactical rather than strategic issues and not a lot will hang on which final set the new firm ends up using.
Document Management System (DMS)
This is not the case with document management, however, which can be regarded as a strategic application. Depending on the sizes of the merging firms, they may not both be using document management at all; many smallish firms get by using the document indexing modules of all-in-one case management systems like those from PracticeEvolve, Eclipse or Advanced Legal. However, when firms get to a certain size then they tend to aspire to ‘full-feature’ legal document management systems as exemplified by iManage and NetDocuments – who between them have some 90% of the large law firm DMS market.
If neither merging firm has historically needed such a system, then they may find that the new combined firm is in that category – in which case they will need to acquire a new and not inexpensive piece of software the selection, acquisition, implementation and integration of which will have to be budgeted.
If one firm already has a DMS, and one does not, then a simple migration across to the established DMS is the answer.
If both firms have the same DMS, there will be far fewer issues – but if one firm has iManage and one firm has NetDocuments then a decision will need to be made as to the new firm’s chosen software, it makes no sense to run a law firm with two different DMS systems. What choice they make will be guided by the other considerations discussed below, but – again – this is a significant project that needs to be accounted for in the merger budget.
I said, ‘far fewer’ issues, but there are still DMS working practice matters that may be incompatible and which need to be resolved. There are two that spring to mind. A simple one is that some firms pre-index documents in the DMS (a new document must be described and indexed before you start work on it), and some firms post-index (you do all that when you first save it). As I say, it is not a big deal, one side simply has to change the way it works.
Of much more fundamental importance is that some firms have ‘open’ DMS systems (all client documents are accessible to all fee-earners), and some firms have ‘closed’ ones (only specified matter fee-earners can access client material).
These methods of working are often regarded as sacred by any particular user firm. There are those who believe that the English regulatory environment implicitly means that no-one should be able to get access to client documents on a matter on which they are not instructed. Contrariwise, there is another set of firms that believes (equally strongly) that the firm’s ‘stock in trade’ is the ‘knowledge’ that resides in client materials and which should (as a matter of principle) be regarded as accessible know-how that its lawyers are entitled to consult as an aid in the quality and consistency of its work product.
Whichever side is right, these views are immiscible, and one must prevail. That will often involve an interesting and painful negotiation. In any event, once resolved, the other half of the new firm will have to change its working practices. This involves change management and training – another first-year expense.
Back Office Systems
Practice Management Systems (PMS)
Moving to the back office practice management systems we have a similar set of issues. Firms that have different all-in-one system, often including key operational case management functionality, will have a series of decisions to make; not just ‘which system to pick’ but also whether the combined firm need a totally different kind of system, bearing in mind its new size.
Larger firms that have different dedicated time and billing systems face a major migration project. The chance of having the same system is high, as with DMS, there are really only two major vendors in this area – Thomson Reuters and Aderant. However, there are different products, different versions, and different methods of deployment, from both of those vendors. This will often mean that there is some significant conversion required, possibly as much as a wholesale migration from one part of the new firm onto a new PMS. In any event, again, the relevant scoped project will need to be planned, sized and costed as part of the planned merger costs.
All-In-One / Case Management
If neither firm has a DMS, but instead each has a different all-in-one case management, email and document filing and time recording and billing then there is a very difficult decision to make and a no less difficult migration project to prepare, manage and implement. Additional complexity may be that each firm has configured their respective case management systems to feed operational data to large institutional clients who will have become dependent on it. To avoid disrupting this service to major clients. These provisions will have to be painstakingly replicated on any new system.
Furthermore, if neither firm had hitherto considered it was large enough to need a dedicated DMS, the new firm may be of that size, and – spending on other considerations - it may be best to bite the bullet and do it now.
In relation to other, thankfully less expensive, functional areas of software, such as Business Development, HR, Knowledge Management / Extranet, conference room, business intelligence, objective management and so on – there will be rationalisation, migration and budgeting considerations that will all have to be fleshed out.
Infrastructure & Outsourcing
As mentioned already, another area that can be missed when just the lawyers are negotiating, is the potentially large costs of integrating completely different architectures and infrastructure such as on-premise vs Cloud, thin vs thick client, MPLS vs SD-WANS, SAN vs NAS storage, iPhone vs Android phone, in-sourced vs outsourced and so on.
Another fruitful source of strongly held quasi-religious principle is that some firms refuse to put any client data in any Cloud system, whilst others do so as a matter of course – this is another issue on which it is impossible to be slightly pregnant - more comprise required.
Commodity hardware is not normally an issue, if one firm has Dell PCs and the other HP you may be able to run two client software images for a while, although over time organic replacement should enable a fairly painless migration to one standard which, in the long run, is a much better solution.
However, if one firm has two display screens per desk, and the other firm has only one, then there will also have to be a decision to either remove screens or install extra ones. Naturally, in the nature of things, removal will not normally be palatable to the members of staff that have two, so – again - further expenditure will have to be earmarked.
Another relevant working practice issue is the extent to which each firm allows, or promotes, home working, and on what basis – firm-provided equipment or personal equipment. More points for discussion and, possibly, additional first year outlay.
The two firms may have very different structures to their IT department, with sets of skills dedicated to the relevant legacy systems and architecture rather than the new ones. One firm may have no training, development or Help Desk teams – preferring to outsource these functions. One firm may have the CIO on the board, and another may have had a Head of IT who was not involved at the top level of management in the practice.
The combined firm will have to decide which governance and structural models to adopt in each case, which may mean hiring, or redundancies – yet more expense, and in the first year.
In any event, a process for training the relevant IT staff with the knowledge of the new systems, which may be novel to both firms, will also have to be managed.
We must now discuss the process by which the decisions relating to all of these issues raised above will be determined. There is no magic wand and in the end, it is little more than common sense – informed common sense – but there is no simple shortcut formula to follow.
Firstly, an exhaustive examination of a variety of important source information to the analysis needs to be undertaken. This will need to include, in relation to both firms:
A relevant observation at this point is that (unless they have recently been involved in merger discussions) very few law firms will have accurate versions of this information readily to hand.
In relation to the new firm, it is necessary to evaluate its characteristics:
This may count as special pleading by a legal technology consultant, but it is fair to point out that what may be needed at this point is an ‘honest broker’; an impartial third party who can take an unprejudiced view of all these issues.
In one merger discussion in which I was involved a few years ago, both firms’ IT Directors had commissioned a report from ‘independent’ consultants each of which provided a report that argued, for perfectly plausible reasons in each case, why the technology of the instructing firm should prevail in the merged business. In fact, the best way forward was a considered combination of both sets of recommendations, topped up by some new observations.
Another major point which bears repeating here is that the new firm is different in scale from either of the two merging firms and will probably have new and different requirements to both. This point often gets lost as the larger firm will naturally tend to seek to implement infrastructure appropriate to a slightly larger version of its own previous self, rather than a whole new entity.
If either firm had grown to the new size organically, they would have had time to assimilate the exigencies uniquely applicable to the greatly increased scale over a learning period, perhaps many years – instead, they will have to formulate those new requirements out of thin air and imagination – this is hard. This is a general point worth reflecting on, irrespective of this article’s specific interest in the technology aspects of a merger.
‘The Hedgehog and the Car Tyre’
Much of this foregoing discussion assumes (despite the fact that there is often a larger and a smaller firm) that we are discussing broadly equal partners in merger discussion, in terms of size and shape and coverage.
We must also consider the other type of merger, the type that is often characterised with one behemoth firm being the car tyre, and the other much smaller firm being the hedgehog - usually due to a difference in size, negotiating power, or both.
In these cases, there is little or no room for negotiation; the established firm is on a well-trodden path, and its rationale for the merger, and its costs and benefits, will be dependent on enforcing its established systems and working practices on the acquired practice.
There will still be key decisions to make, IT and non-IT related, such as how best to assimilate the smaller firm’s systems, and which offices to close - no-one needs two offices in York, or New York.
Bear in mind that whilst many initiatives can be undertaken over time, some of these changes have to occur overnight; new web site, new email addresses for all staff (with forwarding of the old addresses for a set period), incoming phone calls, billing of joint clients – this will take careful planning and project management. In practical terms, some of these steps may initially have to be achieved by invisible software ‘fudges’.
Similarly, there will be working practice issues which must be determined at a very early stage. A clear and obvious example here is which clients the new firm will have to sack - on the basis of conflicts, and anticipatory conflicts, of interest.
Some firms will sue any class of client, others will (because of their predominant expertise) have a policy not to sue a bank, for example. Once you sue a bank, they will take away all their legal work.
More horse trading, on issues very personal to some leading partners, will normally be needed in relation to these issues.
The key point is that if you are considering a merger, it pays to get your IT people involved at an early stage – it may even make sense to prepare a prospectus in advance which includes the IT information outlined above. This will ensure that your estimates of costs and benefits are as accurate as possible, and that you are in a position to make the best decisions on the technology for the new business.
As I have said, and repeated, another important point of principle is that all future decisions should be made in respect of the new business that is about to be created, not a larger version of either merging firm. This means that the technology the new firm needs just may not be what either firm is currently using.
In any case, we all love our own babies, and in the nature of things each firm will be inclined to push for its legacy systems – therefore, it may come to the point where you need an honest broker to give the best advice, especially as it may be the case that neither current head of IT has ever worked in a firm of the scale of the newly merged business.
Despite all this good work, it may not be possible to decide all the IT issues at a very early stage of the merger process, but it is vital to have a good understanding of the size of the tasks to be able to develop even broadly accurate estimates of merger costs, which will be vital to the achievement of the financial goals of the merger.
Author: Neil Cameron
Neil has been advising law firms, corporate law departments, legal tech vendors & public sector legal bodies in all aspects of legal technology for over 30 years. Neil has operating bases in both the US and UK, and splits his time between the two.